While Netflix (NFLX -0.63%) has undoubtedly been one of the best investments in the past decade, it hasn't been a smooth ride for shareholders in recent years. Since hitting its peak in late 2021, the stock is down 44%, even though it has rallied 72% in the past 12 months (as of Oct. 9). 

This top streaming stock might be a volatile beast, which might be unnerving for some investors. However, it's still worth taking a closer look before coming to a conclusion. 

Here are three reasons to buy Netflix shares and one reason to sell. 

First-mover advantage 

Netflix first launched streaming in the U.S. in 2007, so it has a long head start compared to younger rivals in the industry. By being a leader in the streaming space for 16 years, Netflix has amassed a massive user base, now at 238 million global subscribers. This is more than any other single streaming service on the market. 

This huge scale benefits Netflix in a major way. Because it generated $32 billion of revenue in the last 12 months, it can spend tens of billions of dollars on content each year. This helps the company produce and acquire hit shows and movies that viewers can enjoy. 

And since content costs are fixed, having more subscribers and revenue is a boon for the business. A subscale streaming service doesn't have the financial resources that Netflix has, so it can't even come close to spending as much on content. This gives Netflix a notable advantage when attracting new subscribers, as well as keeping existing ones engaged. 

Improving financials 

Netflix's first-mover advantage and tremendous scale have led to a business that's now on solid financial footing. The company's operating margin was 18% in 2022, and management expects it to reach 19% (at the midpoint) this year. A planned price hike could further boost this key metric. 

Even a larger competitor like Walt Disney lags far behind when it comes to profitability. In the media and entertainment juggernaut's direct-to-consumer segment, which houses Disney+, Hulu, and ESPN+, the operating loss totaled a whopping $2.2 billion through the first three quarters of fiscal 2023 (ended July 1). 

Netflix has started producing positive free cash flow (FCF) regularly. After generating $1.6 billion of FCF last year, it's slated to produce $5 billion in 2023. This development can certainly keep the bears quiet. 

Attractive valuation 

Better financial performance, coupled with a stock that's still well below its peak price, creates an attractive setup for prospective investors. Netflix shares currently trade at a forward price-to-earnings (P/E) ratio of 32.4. To be fair, that valuation is meaningfully more expensive than at the start of this year, but it's down significantly from just a couple of months ago. And as Netflix continues increasing its bottom line over the next few years, that valuation could come down even further. 

For comparison's sake, the average stock in the Nasdaq-100 index trades at a forward P/E ratio of 26.1. Netflix is an industry-leading business that benefits from a powerful secular trend. And its FCF is rapidly rising. Investors could find the slight premium worth paying up for. 

Intense competition 

Probably the single most important reason to sell this stock for existing shareholders, or to avoid it altogether for prospective investors, is just how much competition there is in the streaming industry. Yes, Netflix has its advantages, and its financial results demonstrate this. 

But by viewing things from the customer's perspective, we can glean some insights about how difficult things will be going forward. For a good chunk of Netflix's streaming history, its direct competition was almost nonexistent. But now, consumers have a seemingly unlimited number of streaming options. So it might be a good idea to expect slower revenue growth in the years ahead.

Heightened competition can also limit how much higher management can raise prices without losing subscribers. On the content side, Netflix will now likely have to deal with increased costs due to the writers' and actors' strikes, and just from the sheer number of studios that are looking to invest in new shows and movies. 

If the positive factors outweigh the intense competition, investors might want to consider buying the stock.